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Alcoa (AA) Seals $470M Multi-Year Contract with Embraer

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Alcoa (AA - Free Report) has sealed yet another major aerospace deal. The New York-based aluminum giant has landed a multi-year supply contract with Brazil-based leading commercial jets maker, Embraer (ERJ - Free Report) , worth around $470 million.

Under the long-term contract, Alcoa will supply aluminum sheet and plate for Embraer’s new E-Jet E2 family of jet airliners that are scheduled to enter into service in 2018. The contract also includes other Alcoa plate products used in key applications such as wing ribs, fuselage frames and other structural parts of the aircraft. These products will be featured on the E2 and Embraer’s KC-390 military transport aircraft and executive jets.

E2 is the second generation of Embraer’s E-Jets family of commercial aircraft, a narrow-body medium-range jet airliner. The E2 aircraft, which was launched at the Paris Airshow in 2013, has been designed to be the best in its segment.

Embraer selected Alcoa’s proprietary alloys for the E2 due to strength, corrosion resistance and fatigue resistance that they offer. The Embraer deal makes Alcoa the sole supplier for wing skins and fuselage sheet on the E2 aircraft.

Per Embraer, the market segment that the new E2 program has been geared to cater is expected to require 6,350 new aircraft over the next two decades. Embraer also noted that it has more than 50% market share by orders with the current E-Jet and expects to retain same levels with E-Jets E2.

The Embraer contract draws on the aerospace manufacturing capabilities of Alcoa’s Global Rolled Products business from its facilities in Davenport, IA, and Kitts Green, UK.

Alcoa’s shares rose roughly 1.9% to close at $9.27 yesterday.

Alcoa is actively pursuing its aerospace expansion strategy. The company, earlier this year, cut a long-term agreement with Boeing (BA - Free Report) to supply multi-material aerospace parts, marking its fourth multi-year contract with the aerospace giant in a series of recent deals.

Alcoa also landed big aerospace deals with Airbus and Lockheed Martin (LMT - Free Report) last October. The company inked a $1 billion deal with Airbus to supply the latter titanium, steel and nickel-based superalloy aerospace fastening systems. The deal marked Alcoa’s biggest fastener contract ever with Airbus. Moreover, Alcoa won a contract worth roughly $1.1 billion to supply titanium for Lockheed Martin’s F-35 Joint Strike Fighter (“JSF”) program.

Alcoa remains on track to complete the separation of its smelting and refining business from those that cater to aerospace and automotive markets in second-half 2016. The separation will result in the creation of two standalone entities – ‘The Upstream Company’ and ‘The Value-Add Company’. The future Value-Add Company will be named ‘Arconic Inc.’ while the Upstream Company will be renamed ‘Alcoa Corporation’ prior to the separation.

Alcoa, on Wednesday, filed an initial registration statement on Form 10 with the U.S. Securities and Exchange Commission (“SEC)” for the planned separation. The filing – an key milestone for the business split – includes preliminary detailed information about Alcoa Corporation as a standalone company. The business split will mark the completion of Alcoa’s multi-year transformation.

Alcoa is a Zacks Rank #3 (Hold).

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